Comp Reinsurance Pool For Terror? No Consensus

Comp Reinsurance Pool For Terror? No Consensus

By Daniel Hays

NU Online News Service, Sept. 25, 2:44 p.m. EDT?An effort by a 14- member group of insurance companies to create a terrorism reinsurance pool for workers' compensation risks is moving slowly and carriers are far from united on the concept, according to an executive with one firm.

"The only unanimity is that workers' compensation's exposure [to terrorism risk] is very significant," said Jeffrey Klein, government affairs representative for Royal & Sun Alliance USA, Charlotte, N.C.

Since March, the group has had a feasibility study underway by Tillinghast-Towers Perrin, Stamford, Conn. and Risk Management Services, Newark, Calif. Initially, a report was expected in August, but "it hasn't been completed. With an issue of this complexity it's taking a little bit longer to develop," explained Bruce Wood, assistant general counsel with the Washington-based American Insurance Association.

"There's a year-end target now. There are a lot of issues we're wrestling with. There's discussion going on, but no certainty we're going forward," remarked Richard Palczynski, chief actuary at The Hartford, who is the project leader for the initiative.

According to the AIA, which is facilitating the study, the pool would be voluntary in nature and "would operate in an equitable, competitively neutral fashion and would complement federal backstop relief from the Terrorism Risk Insurance Act.

Mr. Klein said the "loose confederation'' of insurers had been looking at the pool issue in the wake of the huge death and injury claims resulting from the 9/11 attacks, which revealed that large aggregations of workers can mean a large risk exposure.

He said among the group, at this point, there is "a plurality, not a majority, that thinks we could do a pool. But there are lots of technical issues--tax issues, company retention issues."

He noted that in order for a pool to operate, companies would have to "pay into it and fund it through our own premiums, and everybody would want deductibles or retentions. So the pool doesn't kick in unless there is a substantial event."

Mr. Klein estimated that the study and review is about three-fifths of the way to completion. He said that among the complexities being examined are ways in which a pool operation would be set up and chartered.

Noting the disparate views among the 14 insurers, Mr. Klein said that one of the larger firms has indicated that, at this point, it does not believe a pool would serve its interests.